The extent to which the Federal Reserve System puts new reserves into the stream should depend upon the needs and requirements of monetary policy and not the needs of someone for funds with which to conduct a business. Therefore, I think that I could speak for the entire Board, although this wasn't specifically considered in preparation for this hearing. I would say that the entire Board would be in favor of repealing section 13 (b).

Senator ROBERTSON. What about the annual audit of member banks? Mr. ROBERTSON. The annual audit of member banks?

Senator ROBERTSON. Yes, member banks. Should you make it, or should the bank be required to make it, or should there be nothing on the subject?

Mr. ROBERTSON. Mr. Chairman, does this relate to the suggestion made by the Federal Deposit Insurance Corporation for authority to require outside audits of member banks?

Senator ROBERTSON. It is part of it, yes.

Mr. ROBERTSON. Well, I think it is very appropriate if a supervisory authority has question about the adequacy of the records of a bank that it should have the authority to require an audit by a qualified firm of accountants and that the cost of that should be paid by the bank, but I think that that requirement, that authority, should be in each of the Federal statutes and not just in one.

As the suggestion is made, it would vest that power in the FDIC, and I don't think it ought to have the power with respect to the other two groups, but I think it is very appropriate that it have the power and that the other Federal supervisory agencies likewise have that power.

Senator ROBERTSON. Should the power of the Federal Reserve Board to shorten the correction period for member banks be eliminated as proposed by FDIC in recommendation No. 99-D?

Mr. ROBERTSON. I would see no reason whatsoever for that change being made. I think it entirely proper to give to the State authorities the power to reduce the correction period, but I don't see any reason for taking it away also from the Federal Reserve System in the event it thinks the situation is sufficiently serious to call for a shorter period. Senator ROBERTSON. Do you favor recommendation No. 37 providing for contributions to the Comptroller by the Board because of examination expenses?

Mr. ROBERTSON. No, Mr. Chairman, I do not.

Senator ROBERTSON. Should the Board be notified by member banks of any substantial change in stock ownership or change in control of the bank?

Mr. ROBERTSON. My answer would have to be "no," but I want to qualify it.

In large institutions where there are changes of stock ownership daily, I think it would be a practical impossibility for a Federal supervisory agency to get that information in every day and do anything with it.

Now it might very well be that the statute should be thus amended so that in the event of a change in the control of an institution the supervising authority ought to be notified with respect to that.

Senator ROBERTSON. I was interested in change of control.
Mr. ROBERTSON. If it is change of control, I think so.

Now, as you know, certainly in the Federal Reserve System we require our examiners to check the stockholders' ledger every time they go into the bank, and from that they would ascertain the change, but it could be that a change during an interim would be important and, therefore, if it is a change of control, I would see no harm whatsoever and possible good in requiring the bank to so advise the supervisory authority.

Senator ROBERTSON. The next question is an optional one. You can pass, if you prefer.

If you were writing the law, would it be a 1-man FDIC or 3-member board?

Mr. ROBERTSON. I would pass as a representative of the Board. I would be glad to give my own personal view.

Senator ROBERTSON. I would like to have those because I have said I have a great regard for your views.

Mr. ROBERTSON. From my own personal point of view, I would think the Comptroller of the Currency should not be a member of the FDIC Board. I sat as First Deputy Comptroller of the Currency for many years. I know that the job of a director of the FDIC is a full-time job, and I doubt that anyone who has a full-time job as Comptroller of the Currency should be required to attempt to act as a director of the FDIC on the basis of a small portion of his time devoted to that activity. Consequently, I would think he should not be.

If you want pure efficiency, a one-man administrator is much better. But if what you want is the benefit of the best judgment you can get, I would select a board rather than a single administrator.

Senator ROBERTSON. But the Comptroller would not be an ex officio member?

Mr. ROBERTSON. I don't think he should, and I don't think the Chairman of the Federal Reserve System should be either.

Senator ROBERTSON. Should member banks be permitted to underwrite and deal in State and local Government revenue bonds? Mr. ROBERTSON. That is a very broad question, Mr. Senator. Senator ROBERTSON. You can pass on that.

Mr. ROBERTSON. I would prefer to pass.

Senator ROBERTSON. Are you considering the increase of interest rates on time deposits above the present maximum of 212 percent? Mr. ROBERTSON. Yes. The Board is considering that and has been considering it for several weeks or months. A decision has not been reached.

Senator ROBERTSON. You have the power to act, I assume?

Mr. ROBERTSON. We do have the power.

Senator ROBERTSON. Should an officer or a director of a member bank be permitted to serve as an officer or director of a savings and loan association, or vice versa ?

Mr. ROBERTSON. I don't see the harm in permitting an individual to serve as a director of both institutions, but by the same token, I think it is very harmful to have the two kinds of institutions operating under the same roof.

Senator ROBERTSON. Do we need any more statutory authority than we now have to prohibit banks from making political contributions? Mr. ROBERTSON. I don't know. I don't have an affirmative suggestion to make along that line, Mr. Senator.

Senator ROBERTSON. Should the Board be notified of any substantial change in stock control of its member banks?

Mr. ROBERTSON. I answered that before.

Senator ROBERTSON. Yes, to that effect.

Should a specific conflict-of-interest-type statute be made applicable to employees of the Board?

Mr. ROBERTSON. I doubt the need for it.

Senator ROBERTSON. Do you have any regulations on the subject?

Mr. ROBERTSON. We do not have any regulations on the subject and have not felt the need for it. We lose very few examiners from Federal Reserve banks to member banks, but we are in a little different position from some other supervisory authorities, certainly different from the Comptroller of the Currency, because an institution would not seek one of our people, that is, an examiner of a Federal Reserve bank, with the view of getting on the good side of the supervising authority because that bank also would be subject to the State supervisory authority and the one man could hardly get the bank in good with both sides.

The Comptroller's Office also, I think, loses more examiners to banks than we do, probably because in the Federal Reserve System there is room for development and progress up within the institution-in a system as large as ours, much more so than in the Comptroller's Office. Senator ROBERTSON. The next question is optional: Why are there more nonmember banks than there are member banks?

Mr. ROBERTSON. I pass.

Senator ROBERTSON. The Senator from Illinois.

Senator DOUGLAS. Mr. Robertson, I recently read a speech delivered by Elliott Bell before the American Bankers Association which has been reprinted as a pamphlet entitled, I believe, "Who Should Manage Our Currency?" in which Mr. Bell said that there should be a financial council or committee composed of representatives of the executive departments and the Federal Reserve Board and that the Federal Reserve Board should more or less be bound by the decisions and advice of this financial council.

In view of the fact that Mr. Bell was a very important member of Governor Dewey's cabinet, and in view of the fact that he is the publisher of a very large financial paper, business paper, and that I believe he is not unacquainted with the precincts of 1600 Pennsylvania Avenue, this speech of Mr. Bell's has been regarded as a trial balloon on the part of the administration to determine the credit policies of the Federal Reserve System.

I would like to ask you whether you would favor the creation of such a council and what power should it have over the Federal Reserve Board?

Mr. ROBERTSON. I would not favor such a council. I think it would be one of the easiest ways to take away from the Federal Reserve System the independence which it has, and I think it would be very difficult, almost impossible, to formulate decisions on an impartial basis and on the basis of economic facts as we see them without regard to political influences if that sort of a proposal were adopted.

Being against the formation of such a committee, I wouldn't want to express any views with repect to what powers it should have if they took the other position.

Senator DOUGLAS. I may say I was somewhat amused at this suggestion in view of the fact that when the same proposal was made 7 years ago in a preceding administration, I was then a freshman here in the Senate as chairman of a committee which considered that question. I found that many of the groups which are now advocating this plan were then opposed to it. Can you offer any surmise as to why there should be this shift of position between 1949 and 1956?

Mr. ROBERTSON. I would prefer not to surmise.

Senator DOUGLAS. Do you have any ideas about it?
Mr. ROBERTSON. No.

Senator DOUGLAS. In other words, is it possible that people would be opposed to the Truman administration and the Democrats having control over the Federal Reserve Board but would favor it if you had a Republican in the White House and a Republican administration? Is that a possibility?

Mr. ROBERTSON. I suppose that is a possibility, but I would prefer

not to

Senator DOUGLAS. I see. You are a very cautious man, Mr.

Robertson.

In the morning edition of the Washington Post I found on page 37 an AP dispatch from New York saying that the First National City Bank of New York and the County Trust Co. of Suburban White Plains are combining to form a bank holding company which would be the second largest banking institution in the country. It goes on to state that if this is approved by the Federal Reserve Board and the Comptroller of the Currency the holding company would control resources of about $7 billion compared with $7,350,000,000 of the Chase Manhattan Bank, currently the second largest.

Is that case before you now?

Mr. ROBERTSON. Yes. That case is before us.

Senator DOUGLAS. I have never believed in legislators trying to high pressure quasi-judicial board to give decisions one way or the other, but as a matter of public policy without regard to this particular instance, do you think there is a danger of bank mergers and bank holding companies developing to the point where there is an undue concentration of lending power and banking resources in the country? Mr. ROBERTSON. Well, I think that is the very basis upon which the holding company statute itself was passed, Senator. Certainly there is that possibility.

Senator DOUGLAS. Do you think it is an actuality?

Mr. ROBERTSON. No, I do not think that it is an actuality as of today. I do not think that the holding

Senator DOUGLAS. As of today, there is nothing to be worried about? Mr. ROBERTSON. I think not.

Senator DOUGLAS. Things, therefore, by inference would have to go much further before you would regard the present degree of concentration as dangerous. Since there is nothing today, since you start from zero danger, you would have to go quite a way.

Mr. ROBERTSON. No, I wouldn't say that. Nor would I want to be tied down to just how far up the scale you go before you reach the danger point.

Senator DOUGLAS. You said there was no danger today?

Mr. ROBERTSON. I said as the situation is today I am not concerned about it. I think there is competition all the way through, but I think it is possible that holding companies or institutions through mergers could grow to the point where there would be a danger of stifling competition. I happen to think that competition is one of the real safeguards in the banking industry and in the Nation itself, but just where you reach that point where you say that growth has become dangerous, where bigness becomes too big, I am not in a position to say.

I think you have to deal with this on the basis of individual cases, and I doubt seriously that you can fix any general rule. I don't think you can pick a figure out of the air and say that when you reach that percentage of the deposits in a given area, for example, you have reached the limits.

Senator DOUGLAS. Of course, if you don't have a general philosophy and if you don't have any individual benchmarks for decision, what you are likely to do is say this case is all right. That is the easiest thing to do.

Mr. ROBERTSON. That is the easiest thing, but that is not the way in which any Government agency should operate.

Senator DOUGLAS. Have you ever refused a request for merger of

banks?

Mr. ROBERTSON. I have seen many mergers turned down and I have participated in turning them down before they ever got to the stage of a formal application.

Senator DOUGLAS. Would you submit to this committee a record of the requests for mergers that you have approved and those that you have disapproved, that is, speaking of the Federal Reserve Board

as such?

Mr. ROBERTSON. Yes. Be very glad to.

We have, as a matter of fact, already submitted that information to the committee.

Senator DOUGLAS. Was that published?

Mr. ROBERTSON. In your hearings here, I believe, on the merger. Senator DOUGLAS. I never saw the list, but if that is publishedMr. ROBERTSON. You will find in all of those

Senator DOUGLAS. Since you have submitted that, can you give a rough judgment as to the proportion which you approved and the proportion you disapproved?

(The list referred to follows:)